Risk Sharing, Commitment, and Information: An Experimental Analysis
This paper describes and analyzes the results of a unique field experiment especially designed to test the effects of the level of commitment and information available to individuals when sharing risk. We find that limiting exogenously provided commitment is associated with less risk sharing, whereas limiting information on defections can be associated with more risk sharing. These results can be understood by distinguishing between intrinsic and extrinsic incentives, and by recognizing that social sanctions are costly to inflict or that individuals suffer from time-inconsistent preferences. Comparing the groups formed within our experiment with the real life risk-sharing networks in a few villages allows us to test the external validity of our experiment and suggests that the results are salient to our understanding of risk-sharing arrangements observed in developing countries. (JEL: C93, D71, D81, O12) (c) 2008 by the European Economic Association.
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Volume (Year): 6 (2008)
Issue (Month): 6 (December)
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- Gary Charness, University of California, Santa Barbara and Garance Genicot,Georgetown University, 2004.
"An Experimental Test of Risk-Sharing Arrangements,"
gueconwpa~04-04-02, Georgetown University, Department of Economics.
- Laura Schechter, 2007. "Theft, Gift-Giving, and Trustworthiness: Honesty Is Its Own Reward in Rural Paraguay," American Economic Review, American Economic Association, vol. 97(5), pages 1560-1582, December.
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